Green power costs and green heat choices

Electricity generated from wind and solar is up to 50% cheaper than previously thought, a new UK Department for Business, Energy & Industrial Strategy report suggests. BEIS had already cut its estimates of the levelised cost of wind and solar by 30% in a previous review in 2016, but now, in the new report, even lower figures have emerged: in their estimates for 2025, electricity from onshore wind and solar is nearly half the cost of gas-fired power. 

In their estimates for projects starting in 2030, 2035 and 2040, while gas and carbon capature and storage costs fall slightly (from £85/MWh in 2025 to £81/MWh in 2040), wind & solar do progressively much better, with large PV falling from £44 in 2025 to £33/MWk by 2040, offshore wind from £57 to £40, beating onshore wind at £44 by 2040. The nuclear cost path is assumed to be as in the 2016 study with costs falling. That’s very debateble: much has changed with nuclear since then, not least continued EPR project cost rises.

The BEIS report doesn’t follow that up, but it does look at energy system costs, including balancing and grid integration costs. Adding them in pushes the cost of variable renewables up, in the range of around £12-30/MWh in 2025 rising to around £20-40/ MWh extra in 2040. Though as Carbon Brief noted, it’s uncertain – it depends on what type of balancing system is used. As I argued in my new book, it may turn out that some balancing systems will actually lead to cost savings, by matching supply and demand more efficiently.  

Be that as it may, given that BEIS also suggests that Carbon Capture and Storage costs will fall, it sees some total abated gas costs as possibly being in line with total renewable costs, or even lower. That seems even more uncertain. CCS is not progressing very well. And although some do still promote it strongly, there are doubts about the whole idea of carbon removal. All this will hopefully feed into the forthcoming White Paper on Energy. That will also  hopefully get to grips with the heating issue. That has been heating up!

Heating debate warms up   

Leeds Trades Union Congress has produced a report opposing the Leeds H21 fossil gas/CCS based ‘blue hydrogen’ home heating plan and calling instead for a focus on insulation and electric heat pumps. They claim that ‘Insulating a home to a very high standard can reduce the need for energy input by around 80%, meaning that heat pumps using renewably produced electricity will provide adequate heat with a minimal carbon cost.’ 

80% energy savings may be a bit optimistic, but certainly heat pumps can be efficient and may reduce the cost of heating. And Leeds TUC say ‘they are already widely available, and production and installation could be rapidly scaled up to meet demand. They may be combined with district heating networks, and have the ability to cool as well as heat space - a possible solution to overheating in Leeds high rise flats with external cladding!’

By contrast ‘The Northern Gas Networks’ H21 project - the proposed conversion of domestic gas supplies to hydrogen - depends, in its first phase, on the production of hydrogen from natural gas by the process of steam methane reforming, thus increasing UK reliance on imported gas, and again relying on (currently non-existent) large-scale CCS to remove the CO2 produced in this process’. That’s fair enough. So-called blue hydrogen has little to offer- it’s just a dubious and inefficient way to a keep using fossil gas. As the report says ‘Projects such as H21 inevitably mean massive diversion of resources away from genuine decarbonisation and into infrastructure that locks in fossil-fuel dependency for years to come’.

However, the Leeds TUC are also uncertain about ‘green’ hydrogen- produced via electrolysis using renewable electricity: ‘The capacity to produce a “green” hydrogen from water at the scale and cost required is a distant prospect, in part because it would require a huge input of renewable-produced electricity - making it nonsensical as an alternative to electrification of home heating’. That is less clear. As renewables expand, there will be plenty of surplus power at times, and, with Power to Gas hydrogen cost falling, the are now several Power to Gas (P2G) projects underway in the UK and many more in Germany. Some of them feed green gas to the gas grid- so that ends up being used for heating. 

There is a case for doing more of that, replacing fossil gas entirely.  The UK gas grid already handles up to four time more energy than the power grid, so, as long as it’s green gas that is used, using the gas grid for heating makes more sense that trying to do it using the power grid. Otherwise we would have to expand the power grid so as to run the heat pumps, especially given the high demand at peak heating times. That would add a lot to the cost- and heat pumps are expensive. 

Of course there can be some large and valuable savings from using heat pumps- they can sometimes supply three or four times more heat than direct electric heaters. But they can’t do this all time- their efficiency varies with the weather, as does power demand. As a compromise and to avoid the need for power grid upgrades to meet heating peaks, the UK government have come out in favour of hybrid heat pumps with gas-fired boilers included alongside electric heat pumps, to meet winter peak heat demand- and longer term they see hydrogen being used instead of fossil gas in them. 

That will all take time. Leeds TUC want faster action and look to a community based approach.  That’s fair enough, indeed in some urban locations, community-scaled heating can more efficient than individual home based systems, but let’s be careful not to reject P2G green hydrogen as well as fossil blue hydrogen. The later is clearly a poor idea, but not so green hydrogen from renewable sources, which can play multiple roles. We can debate the scale use of green hydrogen for direct heating in homes, but it can play a significant role for process heating in industry, and also for some vehicles. In addition, its production from surplus green power, and then its storage, could be a key way to balance variable renewable power- including the power used for running heat pumps.